Assessing the Power of Japan's Agricultural Lobby

Japan's agricultural lobby has long been one of the most powerful opponents of the Trans-Pacific Partnership in Japan. However, trade talks between the United States and Japan have progressed to a point where the lobby is not likely to stop them. Many commentators have claimed that this progress is a result of the group's announcement that it would accept proposed reform that would remove many of the group's privileges and loosen its control over local cooperatives. By 2018, these reforms would begin to promote farm consolidation, making Japanese farms more competitive in the global market and making it possible to eliminate tariffs. Commentators argue that the prospect of these reforms could be easing current trade negotiations.

However, the impact of the concessions on the lobby's political power is exaggerated. Although reversals on the Trans-Pacific Partnership are unlikely if Congress grants trade promotion authority to U.S. President Barack Obama, the agricultural lobby will remain a powerful force in Japanese politics for at least the next five years.

In the wake of Japanese Prime Minister Shinzo Abe's visit to the United States, media coverage has focused on whether the U.S. Congress will pass the measure to grant the president trade promotion authority, giving him the temporary power to negotiate a treaty that would not be subject to congressional amendment. It is important to remember, however, that other countries in negotiations to join the Trans-Pacific Partnership (TPP) face domestic obstacles. In Japan, the fiercest opposition to the trade pact has been from the Japan Agriculture Group, which insists that Japan should not join the trade partnership unless it can maintain high protective tariffs on the five "sacred" products: rice, wheat, beef and poultry, dairy, and sugar. The unexpected breakdown of U.S.-Japan trade talks over these tariffs in October 2014 was a testament to the lobbyist group's influence.

However, in February, Akira Banzai, the president of Zenchu — the organization that directs all of the Japan Agriculture Group's activities — made news when he accepted a proposal from the Abe administration to divest Zenchu of special entity status by 2018. This special status, granted by the 1947 Agricultural Cooperatives Law, empowers Zenchu to audit the finances of hundreds of Japanese agricultural cooperatives that mobilize rural voters and provide goods and services to farmers. Because Zenchu derives some of its lobbying power from its control over these cooperatives, some analysts said Banzai's announcement spelled the decline of the Japan Agriculture Group's influence and paved the way for the TPP. In recent weeks, rapid progress in TPP negotiations, the fate of which now largely lies in the hands of the U.S. Congress, makes it easy to jump to that conclusion.

However, this assumption is only partly true. Loosening Zenchu's control over local cooperatives may encourage farm consolidation, which could make Japanese farms more competitive and open the way for phased tariff reductions. But the key driver of progress may in fact be that the U.S. Congress appears closer than ever to giving the president trade promotion authority. U.S.-Japan trade talks in Tokyo occurred as the Senate Financial Committee debated and approved a bill giving the president that authority, which could strengthen other negotiating governments relative to their domestic opposition by giving them a credible promise that the U.S. Congress will not arbitrarily redraw the agreed terms of the trade pact.

Progress on the TPP is not due to the proposed change in the Japan Agriculture Group's special entity status. Even if the revisions to the Agricultural Cooperatives Law pass, they would take effect slowly, over the next five years. During that time, much of the resources available to the agriculture lobby will remain intact. Thus, even if the group is unable to stop the TPP, it will remain a formidable force in Japanese politics for at least another five years. Zenchu's loss of direct control over the group does not necessarily lessen its ability to get the rural vote, and that ability could become even more valuable to politicians. A breakdown in the lobby's power will not even begin until 2018, when Zenchu will finally lose auditing power and acreage reduction subsidies will also expire.

The State of Agriculture in Japan

The Japanese agricultural sector has been beset by sharp declines in productivity and agricultural income since the 1990s. Much of the sector consists of small, inefficient farmers, typically working part time as weekend farmers, who would be unable to compete under free trade. In 2013, 71 percent of farmers in Japan were part-time farmers (most of whom derived the bulk of their income from activities other than farming), and the average size of a Japanese farm was about 2 hectares (5 acres). At that size, it is impossible to achieve the economies of scale necessary to compete with corporate farms or imports. In Japan, as in much of the developed world, the rural population is aging faster than the rest of the Japanese population; the average Japanese farmer is 66 years old. This kind of farmer represents the Japan Agriculture Group's main political constituency.

To protect this sector, the group lobbies for high tariffs, especially on rice, wheat, beef and poultry, dairy, and sugar. Japanese tariffs on these products are among the highest in the world: In 2013, the rate was 328 percent on sugar, 360 percent on butter and 778 percent on rice. Joining the TPP would mean significantly reducing, if not eliminating, protectionist tariffs. If Japan and the United States cannot reach an agreement that makes an exception for the five "sacred" products, the agricultural lobby says the Japanese government should withdraw from the trade talks.

Disaggregating the Group's Power

Although the agriculture sector accounts for only 1 percent of Japan's gross domestic product, it punches far above its economic weight in politics, largely because of the Japan Agriculture Group's lobbying efforts. Farm lobbies have significant influence around the world, but the agriculture group's business activities, organizational reach, and wealth make it even more politically powerful than its counterparts in Europe and the United States.

The Japan Agriculture Group is much more than just a farm lobby. It is an institution that touches most parts of rural life. Its 694 local cooperatives provide many key services in rural communities, such as the distribution of agricultural products, banking and insurance. This collection of services makes membership attractive not only for farmers but also for locals living near cooperatives, who can join the group as nonvoting associate members. Currently associate members make up about 53 percent of the body's membership. The local cooperatives report to prefectural group federations, which in turn answer to Zenchu. As the group's highest decision-making body, Zenchu has the power to direct and requisition funds from the whole organization and serves as the top lobbying body for the entire Japan Agriculture Group. In this hierarchy, funds from lower cooperatives flow up the chain, and instructions for both business and political activity flow down.

Agricultural cooperatives in Japan have had close ties to the state since the Meiji Era, when the cooperative system functioned as both a provider of services for farmers and a national monopoly for the procurement and distribution of rice. After World War II, the Japan Agriculture Group was set up using the assets of the wartime cooperative system and designated a special entity that both implemented policy and served as a policy consultant for the Ministry of Agriculture, Forestry and Fisheries. Privileged access to the ministry's bureaucrats enabled the lobby to push for policies such as high tariffs and large subsidies that kept crop prices high and small farmers in business.

Although the group serves a social purpose, it has profit-seeking motives similar to the Keiretsu, Japan's powerful conglomerates of interlocked enterprises, because of its agribusiness activities. Zenchu controls several national-level Japan Agriculture Group enterprises. The most important are Zennoh, the group's purchasing and marketing division; Zenkyoren, a mutual insurance federation with low premiums; and Norinchukin, the agricultural bank. These are very large enterprises that give the Japan Agriculture Group a sizable amount of wealth to use for political activities. To illustrate scale, Zenkyoren has assets amounting to $395 billion, and the Norinchukin Bank has deposits of $780 billion, making it the second-largest bank in Japan. These have become the group's most profitable businesses.

The lobbyist group's wealth and power makes it a powerful force in Japanese politics. The group has about 10 million members, nearly 10 percent of the voting age population. The group's hierarchical structure and deep involvement in rural life give it the ability to mobilize voters and arrange demonstrations. Its endorsement is a highly sought-after asset for politicians. The impact is hard to quantify, but during the 2012 election, 162 of the 194 Liberal Democratic Party Diet representatives elected had endorsements from the Japan Agriculture Group. Endorsed candidates, typically members of the Liberal Democratic Party, have sometimes been known to trounce candidates endorsed by the Liberal Democratic Party center. This occurred most recently in the January gubernatorial election in Saga prefecture. As a result of the funds provided by its businesses, the lobbyist group can invest heavily in campaigns against politicians hostile to its interests, even in districts without a strong farming presence.

The Impact of Reforms on the Group's Clout

In May 2014, the Cabinet's Council on Regulatory Reform proposed several measures to cut down the Japan Agriculture Group's influence in the countryside, mainly by targeting Zenchu's institutional control over the group and cutting off several of its funding streams. The first proposal was to remove Zenchu's special status and convert it into a general nonprofit corporation. The second was to deprive Zennoh of its cooperative status, converting it into a joint-stock company subject to higher corporate taxes. Most significantly, the council proposed limiting the ability of non-farmers to interact with the Japan Agriculture Group. However, Zenchu fought back, successfully lobbying its allies in the government and Diet to pressure Abe to postpone reforms and give Zenchu greater leeway in deciding how it proceeds.

Zenchu began negotiations with the ruling Liberal Democratic Party in June 2014. The proposed amendments to the Agricultural Cooperatives Law appear to be the key points remaining. By 2018, Zenchu will be a general nonprofit corporation, subject to taxation like any other. Lower group cooperatives will have the option of being audited by any certified public accountant. Zenchu will also lose its ability to raise tax-exempt funds from the local cooperatives without their consent, as well as their institutional channels to the Ministry of Agriculture, Forestry and Fisheries. Zennoh will become a joint-stock company, paying higher taxes and no longer enjoying monopoly prices on its sales.

In return, the Liberal Democratic Party appears to have left intact Zenchu's control of Norinchukin and Zenkyoren, the Japan Agriculture Group's most profitable enterprises. Moreover, the decision on whether to limit ties between the lobby and non-farmers has been postponed for five years. This preserves more than half of the group's membership and, therefore, much of its funding stream and electoral power, at least for the time being. Even if reforms sever the group's institutional ties with the Ministry of Agriculture, Forestry and Fisheries, it is highly unlikely that informal ties will simply evaporate.

The reforms would free primary farming cooperatives from micromanagement from the center. The managers of primary and prefectural cooperatives would be allowed to make their own business decisions and hire their own business advisers. This could lead to the independent choice to consolidate farms and become more competitive, especially when unplanted-paddy subsidies, which keep prices high by incentivizing farmers not to plant, phase out in 2018, giving farmers incentive to sell unused farmland.

The reforms will not turn Zenchu into a proponent of free trade. It retains both the intent and capability to oppose the TPP. Since February, the Japan Agriculture Group-affiliated press has been unrelenting in its attacks on the trade pact and Abe's agricultural reform efforts. Although the loss of about $66.4 million in untaxed levies from lower-level cooperatives and much of Zennoh's revenues will be a significant setback, Zenchu will still be a very wealthy organization simply because it retains its member base and its most lucrative branches. Even now, when it no longer appears possible to derail the TPP talks, the group will sink considerable resources into lobbying against it.

Farmers are not going to shed their Japan Agriculture Group memberships en masse just because Zenchu has loosened its hold on lower cooperatives. Most farmers grew up at a time when the group controlled every aspect of the farm sector. These are the same people who buy the group's goods by default, even if they are higher-priced than those from other sources. As long as these people are still around, politicians will have incentive to seek the group's endorsement to try to get their votes. In the near term, Zenchu's acceptance of reform does little to ease pressure on Japanese politicians who depend on the rural vote. The Japan Agriculture Group will have the money, people and networks necessary to remain a strong lobbying force. In fact, based on the record-low voter turnout during the unified local elections in April, the group's ability to mobilize voters, even if diminished, will be highly valuable to Japanese politicians. The 2016 upper house elections may offer an opportunity for the group to build political support in the Diet — and potentially improve the terms of reforms.